Peter Cho

@peteraldehyde

You can absolutely build a profitable developer SaaS business in 2018

Lessons I’ve learned from working with hundreds of developer SaaS businesses while building and managing developer-focused marketplaces at Heroku and Manifold

Background

During my time working on developer marketplaces, I’ve been exposed to hundreds of developer-focused businesses of all shapes and sizes, ranging from solo API operators working from their basements, to goliaths like IBM and their cloud division.

I’ve had the opportunity to dive in deep on problems ranging from pricing optimization, converting tens of thousands of freemium users to paid accounts, co-sales agreements between large enterprise organizations, and the tangled maze of complexity that is known as HIPAA compliance.

The one big thing that I’ve taken away from my experience is that the developer product market is still on the cusp of a Cambrian explosion, and there is nothing stopping you from being a part of it.

In this post I’ll explain why the landscape is still good, if not great, for independent developer tools and services. I’ll also provide some tips for finding opportunities of your own and resources for getting started.

Disclaimer: All opinions and findings are my own and not a reflection of either of my former companies. I’ve written this solely to share what I’ve learned over the years and because I believe there is potential for a lot more exciting growth in the industry. I hope that you find some value from my experience, and possibly get inspired to build your own developer tool or service. :)

First, let’s bust a few myths

“Developers don’t pay for products”

You’re right. Developers and hobbyists may not pay for products, but teams and companies responsible for delivering business value in a constrained period of time definitely pay for products. Put 100 developers in a room and 80 of these people will not pay for your product. But don’t miss the 20 folks in the back of the room willing to pay quite a lot to solve their business problems.

<< The categories on ripienaar’s free-for-dev awesome list. There are well over 500 products on this list alone.

“There are already too many developer tools and services”

Smarter people than I have been calling the developer tools gold rush for years. And there are more than just a few services that are already available to developers. The fact remains that year after year, the sheer number of businesses that exist online continues to grow, while the needs of existing businesses continues to grow as well. An increase in brick-and-mortar businesses means you need more plumbers, electricians, cleaning services, accountants, and in a similar vein the overall pie for developer products will continue to grow with the number and size of online businesses.

“(insert major cloud) is eating the world”

AWS, GCP and Azure are all building their respective Death Stars, but in the same way that people are willing to deviate from Walmart, McDonald’s, and Starbucks, developers will always seek services that cater to them for various unique reasons, whether it’s specific use-cases, better documentation, or more knowledgeable support for their particular vertical. It’s unlikely, if not impossible, that one company will create the end-all product for all developers, use-cases, and verticals, just as there isn’t a single TV, phone, or laptop.

Caveats

For every Heroku there is a Parse, for every MongoDB a RethinkDB. Developer products are not a sure-fire path to success. But for the many of you out there with an entrepreneurial spirit and a knack for building useful tools, there is still a lot of land to grab in the developer tools space.

The ever-growing importance of developer products

In 2018 it is unthinkable for a developer to build an application without relying on at least one service. In reality, you’re likely using dozens of services, though they go by various names: PaaS, SaaS, IaaS, DBaaS, API, add-ons, among others. Take a look at StackShare to see the sheer number of developer products that the biggest tech companies use to run their businesses.

Check out StackShare to see the services and tools that your favorite companies rely on to run their businesses

The upside for developer product businesses continues to gain momentum

In recent years we’ve seen a lot of activity from developer products pursuing IPOs and acquisitions. In terms of IPOs, the list of high profile developer product companies continues to grow with SendGrid, New Relic, Twilio, MongoDB, Elastic, Atlassian, among others. The acquisitions list is even larger, with notable acquisitions like Treasure Data by Arm and AppDynamics by Cisco. Many of these companies come from humble beginnings, with New Relic originating as a Ruby gem popular with Heroku users.

Though most people focus on the headline grabbing exits, I’ve personally seen countless products go from two people in a garage to a few dozen people making a few million dollars in annual revenue in just a few years. A friend of mine took what he hoped best-case would bring in $1,000/month to supplement his income, but ended up turning into a $400,000+/year business within three years. Another team I worked with was working on a completely unrelated product at YC, then pivoted, taking an internal tool they were using and using it to transform into a fast-growing developer tools business with over $8M in funding to date.

There are also countless individuals and teams who build healthy side projects, supplementing their incomes by building useful tools for fellow developers to generate a mostly passive income. Many of your favorite services are built and managed during nights and weekends as passion projects, or as side hustles from agency or other full-time work.

More than one path

Although most of my examples focus around profitability, there are alternative routes for building developer tools. One of the most prominent funding platforms is Open Collective, which lets you create a community to transparently collect and spend funds, and developers have also been known to use tools like Patreon and Buy Me a Coffee to support their development.

The continued evolution of the space

It’s important (though obvious) to note that the year 2018 is not the end-state for developers. History has shown us that Oracle will beget technologies like mongoDB, Redis, and Postgres, which will beget technologies like CockroachDB. There are a large number of powerhouse developer product companies today, but they will all be overturned by continuous innovation by developers like you.

Finding your own pickaxe to sell

There are tons of great resources already in regards to finding ideas for startups. In this section I’m going to focus on what I’ve encountered from my own experiences, specifically in regards to developer businesses.

Looking within

Start by looking at the tools you’ve built internally for your own needs. Odds are that if it’s useful to you, it can be useful to others. Many teams have taken services they were using internally and “productized” them for the greater world, only to realize that it was a bigger business than what they were originally pursuing.

Marketplace “idea arbitrage”

Find existing tools that are doing well on certain marketplaces, and offer the same type of service to other marketplaces. For example if you see a MongoDB product doing particularly well on Heroku, you can assume customers on Google Cloud may need a similar solution. Based on my experiences, you could take most of the services on AWS that aren’t already on marketplaces like Heroku and bridge the gap for their developers.

Improving what isn’t “broken”

I’ve seen countless startups succeed by taking a product they thought was inadequate and putting their own spin on it. Don’t like the APM you’re using? Build a better one. Think the API your business is relying on could be better? You’re probably not alone. Although we’re conditioned to think there isn’t honor in copying and improving, many successful developer products were a byproduct of frustration more than anything else. Much of the time, what feels “broken” may just need a twist or an angle that is specific to your use-case, that is likely shared by your future customers.

Going developer friendly

Riffing off of the last suggestion, there are a number of products that end up targeting the enterprise and leaving developers behind. Maybe the product becomes less developer friendly, the pricing becomes untenable, or they cut developer plans altogether. That doesn’t necessarily mean that it was unprofitable to serve developers, it’s likely they wanted to move upstream for bigger deals and to appease their shareholders. If you’re not interested in building the next enterprise developer company, this can be an opportunity for you to pick up a healthy base of disgruntled and abandoned developers.

-aaS new technologies

Often you will have developer product businesses focused on their open source business, deferring the hosted business for a few years. Often the technology may be pre-GA, or it’s a smaller team who can’t afford to split focus at the time. It can become a perfect opportunity to build a hosted service business. If you look at Heroku there are half a dozen Redis providers, all with successful businesses. If you look at MongoDB, mLab built a business hosting MongoDB for years before the Atlas product launched, and they now co-exist. It’s arguable that mLab even has more love from developers than MongoDB’s own product. Even if a new technology is pre-GA, it’s likely that there are folks out there who are going to use the software in production, with or without your help.

Getting customers

Now I’m admittedly biased given my marketplace background, but in my experience the easiest place to get started is marketplace integrations.

How marketplaces work

In exchange for a 15–30% revenue share, marketplaces on platforms like Heroku, GCP, AWS, etc will let you list your product as an “add-on” to their PaaS and IaaS products. In return you get exposure to their developer base, as well as opportunities for co-marketing and a smooth integration with their platforms.

Heroku is a great starting point to get some early exposure and validate your idea with their beta program. You can set up a simple integration, and after you have a dozen or so people test to make sure it’s working, you offer a free plan for Heroku users to beta test. In my experience Heroku customers are most prone to spend money on things like add-ons, as they’re both cultured into it and the nature of Heroku’s product attracts a type of person who prefers convenience. There are a number of businesses who do a large majority of their revenue on Heroku alone.

The next step from there would be to move into something like Manifold, which has very similar APIs and has the benefit of being multi-cloud and aims to be a “Steam for Developers”.

You can also opt to join any of the classic Death Stars like Google Cloud, Microsoft Azure, or AWS, though I’ve heard mixed reviews about their ability to drive leads to smaller independent shops.

Beyond that, there are lots of startups who have built healthy direct businesses using word of mouth, networking at conferences, or using various forms of paid social or newsletter ads. If you’re looking to get your feet wet and test an MVP though, I’d recommend starting with a marketplace.

Resources to take you further

There are tons of resources that can help you in your journey to build a profitable developer business. One of my favorite sources for high quality content is Heavybit. Their focus tends to be high growth companies that want to scale to the enterprise, but there is a lot of good information that is generally applicable to all developer product businesses. Their library consists of everything from pricing strategies to content strategy. They also have some great events if you’re local in the Bay Area, and many of them are free to attend.

Heavybit has tons of great videos, blog posts, and podcasts that talk about all the intricacies of building and scaling developer products.

Some really great communities that aren’t specific to developer products but have developer followings are Indiehackers and Product Hunt. Indiehackers is a great community of like-minded folks trying to build profitable online business and side projects. Product Hunt tends to target consumers, but when we were building Manifold we found a lot of success with Product Hunt’s community, and they were great for driving traffic and providing valuable feedback.

Lastly, if you’re reading this you probably already know this but Hacker Noon is a great resource for technically minded founders and has a wealth of information like this article on How to build a SaaS with $0.

You absolutely don’t have to build a profitable developer SaaS business in 2018

Don’t get me wrong, it is incredibly difficult to build a product and business from nothing. If you’re happy with your current career or the product you’re building, you can stay the course. But if you’ve been looking for a new opportunity, want to try something new, or just need a side project to occupy your time, developer products are still a really exciting space. If you’ve been on the fence about building a developer product, hopefully I’ve piqued your curiosity!

I hope you found some of what I had to share useful, and don’t hesitate to reach out in the comments, on Twitter, or via email if you’ve got questions or feedback! I know this was very high level since there was a lot to cover, so if you’re interested in any topic in particular, please let me know and I’m happy to write a follow-up post.

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